MNI US OPEN - ECB Target in Sight as Headline Inflation Slows

NEWS

ECB (BBG): ECB Warned to Avoid Needless Damage to Growth in Panetta’s Debut

The European Central Bank must be careful to avoid too much harm to growth as it keeps borrowing costs high to wring inflation out of the economy, Bank of Italy Governor Fabio Panetta said. In his debut speech on monetary policy after taking up his role a month ago, the former ECB Executive Board member stuck with his long-time dovish tone, just as consumer-price data show initial signs of a synchronized slowdown across the region.

ECB (BBG): ECB to Pause PEPP Reinvestments Over Christmas on Low Liquidity

“In line with previous years, the Eurosystem will temporarily pause PEPP purchases (reinvestments) in anticipation of significantly lower market liquidity toward the end of this year,” European Central Bank says on website. Last trading day will be Dec. 19 and purchases will resume on Jan. 2. Securities lending facilities will remain operational on all business days in December.

EUROZONE (MNI): EuCo President Michel Moots EU 'Defence Bonds'

President of the European Council Charles Michel has mooted the idea of mutualised EU defence bonds to help build a bigger industrial base for the sector. Speaking at the European Defence Agency's Annual Conference. Michel suggested that such bonds could become a new asset class. In the same speech, Michel said that EU states would put EUR60 billion into investments in defence and said EUR600 billion was possible over the next ten years. He also reiterated the EU's pledge to produce a million artillery rounds for Ukraine, although conceded that this would be slightly later than the original deadline of March 2024.

ISRAEL (MNI): Truce Extended for 24hrs as US' Blinken Visits Again

Israel and Hamas have extended their temporary truce by another day, with Hamas-held hostages set to be released in exchange for Palestinian prisoners in Israel. The initial four-day truce announced last week stated that the truce would be extended by 24 hours in exchange for each 10 Hamas-held hostages released (which would also see 30 Palestinian prisoners released). The exact terms of this newest truce extension remain unclear.

JAPAN (MNI): Time Needed to Adjust Easy Policy - BOJ's Nakamura

Bank of Japan board member Toyoaki Nakamura said on Thursday that it will take time and careful consideration to adjust easy policy as the bank faces the crucial point of achieving its 2% price target. “The current price rises are due mainly to import price cost-push and I’m confident of achieving the 2% price target accompanied with wage hikes,” Nakamura told business leaders in Kobe City.

BOK (MNI): Hawkish Hold Issued Amid Persistent Inflation

Bank of Korea Governor Rhee Chang-yong on Thursday maintained his hawkish monetary-policy stance due to persistently elevated inflation and high household debt growth, warning rates would stay restrictive for some time despite the Board's recent decision to hold the Base Rate at 3.5%. “The inflation path is projected to be higher than previously forecast while economic growth continues to improve," Rhee noted.

RUSSIA (BBG): Putin to Hold First Large News Conference Since War, Tass Says

Russian President Vladimir Putin will hold a large-scale talk-show event on Dec. 14, reviving a once annual occurrence that he skipped last year amid his war against Ukraine. Putin’s news conference will combine two events that have traditionally featured questions from the media and citizens respectively, Kremlin spokesman Dmitry Peskov said, according to state-run Tass news service.

POLITICAL RISK (MNI): OSCE Gets Underway w/Russia's Lavrov In Attendance

The annual Ministerial Council of the Organisation for Security and Cooperation in Europe (OSCE) is now underway in the North Macedonian capital Skopje. The meeting of OSCE foreign ministers has garnered attention due to the attendance of Russian Foreign Minister Sergey Lavrov, making a rare visit to a NATO member state. The Baltic states of Estonia, Latvia, and Lithuania are all boycotting the event due to Lavrov's attendance while the Polish and Ukrainian foreign ministers refused to participate in the plenary session attended by Lavrov and US Secretary of State Anthony Blinken attended the working dinner on 29 Nov but had left for Israel by the time Lavrov arrived.

COMMODITIES (MNI): OPEC Discussing Possible Cuts but Agreements Unclear

OPEC+ is due to hold its meeting later Thursday with talks of further cuts being discussed but no confirmation around agreement by the group - while a rollover appears more likely. “OPEC+ talks on 2024 oil policy ahead of a Thursday ministerial meeting were focusing on an additional oil supply cut to support the market.” Reuters reported Wednesday evening London time. “Two OPEC+ sources said the group was discussing a deeper collective supply cut in the first quarter of which the exact duration and volume was not yet clear. One of them said OPEC+ may not be able to agree on this and it was possible the meeting could roll over existing policy.” it added.

DATA

EUROZONE DATA (MNI): ECB Target in Sight as Headline Inflation Slows

• EUROZONE NOV FLASH HICP +2.4% Y/Y
• EUROZONE NOV FLASH CORE HICP +3.6% Y/Y
• EUROZONE OCT UNEMPLOYMENT RATE 6.5%

Eurozone inflation slowed markedly in November, with the headline rate dipping to 2.4% from 2.9% in October, and with prices falling 0.5% m/m. The slowdown brings the ECB's 2% target into clear sight for the first time since summer 2021. Core inflation, which excludes energy, food, alcohol and tobacco, and is closely watched by many of the ECB's Governing Council, also slowed sharply, with prices falling 0.6% m/m and the annual rate at 3.6%. Across the eurozone, sharply lower rates were seen in Italy (+0.7% y/y), the Netherlands (+1.4% y/y), Belgium (-0.7%) and Finland (0.8%).

GERMANY NOV UE RATE (SA) 5.9% (FCST 5.8%); OCT 5.8% (MNI)
GERMANY NOV UE TOTAL (SA) 2.702MN; OCT 2.680MN (MNI)

FRANCE NOV CPI -0.2% M/M, +3.4% Y/Y (MNI)
FRANCE NOV HICP -0.3% M/M, +3.8% Y/Y (MNI)
FRANCE OCT PPI +0% M/M, -1.2% Y/Y (MNI)

FRANCE GDP Q3 2ND EST -0.1% Q/Q (MNI)
FRANCE GDP Q3 2ND EST +0.6% Y/Y (MNI)
FRANCE OCT CONSUMER SPENDING -0.9% M/M, -1.3% Y/Y (MNI)
FRANCE OCT CONSUMER MANUF SPENDING -0.3% M/M, -1.8% Y/Y (MNI)

SWISS OCT RETAIL SALES +0.2% M/M, -0.1% Y/Y (MNI)
SWISS KOF NOV ECONOMIC BAROMETER 96.7 (MNI)

UK DATA (MNI): Little in the DMP Survey to Alter the BOE's Course

Overall, generally a mixed DMP survey. Realised price growth saw a decent fall, while expected price growth fell a little (but still appears pretty sticky). Realised employment growth actually ticked up marginally - and appears to have stabilised around the high 2% level recently. No slowdown in wage growth expectations - they have rounded to 5.1% for four months in a row now after falling from 6.0% between December 2022 and July 2023. Overall nothing really here to alter the MPC's course - they will still argue that upside risks remains to inflation and there is nothing in here to really bring a cut any sooner.

CHINA DATA (MNI): China's November PMI Falls Further on Weak Demand

• CHINA NOV MANUFACTURING PMI 49.4 VS 49.5 IN OCT

MNI (Beijing) China's manufacturing Purchasing Managers' Index fell by 0.1 points to 49.4 in November, staying in the contractionary zone below the breakeven 50 mark for the second month, as some manufacturing industries entered the traditional off-season and weak demand weighed, data from the National Bureau of Statistics showed Thursday. The production sub-index declined by 0.2 points to 50.7, while the new orders sub-index was 49.4, decreasing by 0.1 points from the previous month.

JAPAN DATA (MNI): Jan-Oct Factory Output Posts Second Straight Rise

• JAPAN OCT INDUSTRIAL OUTPUT +1.0% M/M; SEPT +0.5%

Japan's industrial production rose 1.0% m/m in October for the second straight rise following a 0.5% rise in September, thanks to higher production of motor vehicles and electronic parts and devices, data released by the Ministry of Trade and Industry showed on Thursday. The October data was largely in line with the Bank of Japan's view that industrial production has been more or less flat, and the outlook is solid, possibly supporting a moderate recovery.

JAPAN DATA (MNI): Japan Oct Retail Sales +4.2% Y/Y; 20th Monthly Rise

• JAPAN OCT RETAIL SALES +4.2% Y/Y; SEPT +6.2%
• JAPAN OCT RETAIL SALES -1.6% M/M; SEPT +0.4%

Japanese retail sales rose 4.2% y/y in October, following the 6.2% y/y growth reported last month, marking the 20th monthly rise. On a monthly basis, retail sales decreased 1.6%, compared with the o.4% growth previously. General merchandise sales increased 3.5% y/y, slower than the 5.6% y/y increase last month, while sales of fabric apparels and accessories falling 7.2% y/y, dipping further from the decrease of 5.9% y/y in September. Sales of food and beverages increased 6.6% y/y, after growing 7.1% y/y last month.

JAPAN DATA (MNI): Japan Consumer Confidence Rises Again in November

Japan's consumer confidence index posted its second straight rise in November, increasing to 36.1 from October's 35.7, according to the latest Confidence Survey released Thursday by the Cabinet Office. The sub-index on asset prices, not included in calculating overall consumer confidence, stood at 40.7 in November, down from 42.1 in October.

AUSTRALIA OCT BUILDING APPROVALS +7.5% M/M, -6.1% Y/Y (MNI)

FOREX: Softer French, Dutch CPI Undermine EUR Rally

• The single currency is among the poorest performers in G10 early Thursday, undermined by a series of lower-than-expected CPI prints from France and the Netherlands - releases which spelled downside risks vs consensus for the Eurozone CPI Estimate. As a result, the lower-than-expected Eurozone-wide figure failed to meaningfully move market in either direction, with as easier ECB rate pricing across 2024 persists across the morning.
• The USD Index is the main beneficiary, rising through Wednesday's high and narrowing back in on the better levels of the week. The corrective bounce posted over the past two sessions coincides with the 14-day RSI flashing technically oversold - which may mean the market moves are deemed corrective at this stage.
• GBP trades softer, with GBP/USD softer through the Wednesday low, however EUR/GBP managed to maintain the losing streak of nine consecutive lower lows. A break at current or lower levels would mark the first break below the 100-dma since May, a technical break that presaged a ~3% downleg across May and June.
• The MNI Chicago PMI data takes focus going forward, with markets expecting the headline to improve slightly to 46.0 from 44.0 previously. Personal income/spending data also crosses as well as Canadian GDP. The speaker slate is similarly busy, as ECB's Lagarde & Nagel, Fed's Williams and BoE's Greene are all set to make appearances.

EGBS: Off Highs in Spite of Soft EZ Inflation; Peripheries Widen

Core/semi-core EGBs are off intraday highs in spite of Eurozone November flash inflation printing on the soft side of analyst expectations.

• The national releases over the past two days will have revised initial analyst expectations lower, but a soft print in Italy (released alongside the EZ figure) will have meant even updated expectations were too high. ECB-dated OIS markets now price the first full ECB cut by the April 2024 meeting for the first time while the 5y5y inflation swap sits 3bps lower at 2.334% (if we close at this level, it would be the lowest close since the end of March).
• Bund and OAT futures sit lower on the day at typing, while the German cash curve bull steepens with 2s10s up 3.6bp at -35.6bps. OATs are mixed, with 10Y OAT yields up 0.3bp at 2.999% and 2Y OAT yields down -1.4bp at 3.224%.
• Alongside the inflation data, Eurozone unemployment for October was in line at 6.5% but German and Italian figures printed above consensus expectations.
• Peripheries widen to Bunds as European equities see a mixed morning. The 10-Yr BTP/Bund spread is 2.6bps wider at 176.5bps.
• Lagarde speaks at the ECB Banking Supervision Forum at 1330GMT, so may not be a market mover. Nagel also speaks later at 1700GMT. Comments from Panetta this morning did not add much new to the policy debate.

GILTS: The Odd One Out This Morning

Gilts trade on the backfoot to start.

• Futures are -50 or so around 97.10, off worst levels of 96.99.
• Cash gilt yields are 3-5bp higher across the curve, with 2s10s and 5s30s sticking to ranges seen through November.
• We haven’t got a definitive explainer for the move given the bid in core/semi-core EGBs and lack of UK headline flow.
• Maybe some are looking to enact cross-market plays given the recent run of higher for longer rhetoric from the BoE’s MPC and this morning’s CPI data out of France and the Netherlands.
• Still, we would expect to have seen something UK specific to drive such divergent moves in gilts and the short end vs. peers.
• A bid in oil will be helping pressure/cap any rallies in bonds, although that has faded from extremes.
• There wasn’t anything in the way of market-meaningful surprises in the DMO’s FQ4 operations update.
• SONIA futures show flat to 8.5bp lower through the blues, with the strip steepening.
• BoE-dated OIS contracts through ’24 MPC meetings are flat to 3.5bp higher.
• The BoE DMP release and comments from MPC hawk Greene are due later today.

EQUITIES: E-Mini S&P Remains Bullish Despite Yesterday's Slight Pullback

A bullish theme in Eurostoxx 50 futures remains intact. MA studies are in a bull-mode position signalling a rising cycle and the potential for a continuation higher. The focus is on 4388.00, the Aug 30 high. It has been pierced, a clear break of it would open 4400.00 and 4446.00, the Aug 10 high. Initial firm support to watch is at 4298.50, the 20-day EMA. Note that the trend condition is overbought, a move lower would allow this overbought reading to unwind. A bullish theme in S&P e-minis remains intact and the contract traded higher yesterday, before pulling back. The outlook remains bullish. A strong rally on Nov 14 resulted in the break of a trendline drawn from the Jul 27 high. This breach and the subsequent rally, reinforces bullish conditions and opens 4597.50, the Sep 1 high. MA studies are in a bull-mode position highlighting an uptrend. Initial firm support is seen at 4481.71, the 20-day EMA.

• Japan's NIKKEI closed higher by 165.67 pts or +0.5% at 33486.89 and the TOPIX ended 10.43 pts higher or +0.44% at 2374.93.
• Elsewhere, in China the SHANGHAI closed higher by 7.985 pts or +0.26% at 3029.673 and the HANG SENG ended 49.44 pts higher or +0.29% at 17042.88.
• Across Europe, Germany's DAX trades higher by 29.52 pts or +0.18% at 16194.51, FTSE 100 higher by 20.98 pts or +0.28% at 7444.08, CAC 40 up 11.81 pts or +0.16% at 7279.31 and Euro Stoxx 50 up 3.15 pts or +0.07% at 4373.29.
• Dow Jones mini up 139 pts or +0.39% at 35627, S&P 500 mini up 5.25 pts or +0.12% at 4564.5, NASDAQ mini up 21.75 pts or +0.14% at 16045.25.

COMMODITIES: Corrective Cycle in WTI Futures Still in Play as This Week's Gains Extend

The trend outlook in WTI futures is unchanged and remains bearish. However, a corrective cycle is in play and the contract has traded higher this week. Resistance to watch is at $79.65, the Nov 14 high. A breach would strengthen a bullish theme and open $83.20, the Nov 3 high. On the downside, the bear trigger lies at $72.37, the Nov 16 low. Clearance of this level would resume the downtrend. The trend condition in Gold remains bullish and this week’s strong rally reinforces this set-up. The yellow metal has traded through resistance at $2009.4, the Nov 7 high. The clear break of this hurdle has confirmed a resumption of the uptrend and signals scope for an extension towards 2063.0, the May 4 high and a key resistance. Note the all-time high at $2070.4 (Mar 8 ‘22). Initial firm support is at $1989.5, the 20-day EMA.

• WTI Crude up $0.69 or +0.89% at $78.46
• Natural Gas up $0.02 or +0.82% at $2.828
• Gold spot down $5.12 or -0.25% at $2039.21
• Copper down $0.5 or -0.13% at $382.05
• Silver down $0.04 or -0.15% at $24.9765
• Platinum down $2.57 or -0.28% at $932.13